While market-based pricing can potentially reduce the price for two-thirds of essential medicines, there are far too many loopholes. OPPI has taken an exception to Moneylife DPCO 2013 loopholes article. Here are OPPI views, along with our counterviews
According to the Drug Prices Control Order (DPCO) 2013, the ceiling price of essential medicines is fixed based on the simple average of the prices of all brands of that drug that have a market share of at least 1%. The national list of essential medicines lists 348 bulk drugs, which are sold as 650 formulations. The DPCO itself covers only 14 %-17% of the Rs75,000 crore pharma market, which means only a small subset of the market will be impacted. The good news is that for two-third essential medicines, there can be average price reduction of 22% (even though some reports claim reduction by 30%-40%). The bad news is that there are far too many loopholes to really see reduction in your chemist bill.
Organisation of Pharmaceutical Producers of India (OPPI) had written to Moneylife stating that the article (Read - Medicine prices: DPCO loopholes will deny cheaper essential drugs–Part2) was incorrect or ill-informed; therefore misleading.
Here are the different points raised in OPPI email
DPCO 2013 ceiling price of one-third essential medicines is higher than market leader’s price. This will legitimately allow market leaders to increase their prices.
OPPI view - Under DPCO 2013, automatic price revision based on wholesale price index (WPI) is restricted to the ceiling prices notified by the government for scheduled formulations. As per DPCO 2013, annual increase in retail prices of scheduled formulations on the basis of WPI though permissible is not automatic. Under new DPCO 2013, market leaders who have a lower price than ceiling prices cannot increase their prices. They can only apply for an increase at WPI year-on-year as is for all other brands.
Moneylife counterview - We never said that DPCO 2013 will legitimately allow market leaders to increase their prices. (Read - Medicine prices: Encouraging profiteering from essential drugs – Part1). We said “It (price increase) may not happen, but there is no penalty in case of violation of Para 13(2) of Drug Price Control Order (DPCO)”
DPCO 2013 Para 13 (2) is impractical if not unconstitutional - you cannot have multiple ceiling prices. It is in contradiction of Para 14 which follows - Para 14 (2) says inter alia "....no manufacturer shall sell the scheduled formulations at a price higher than the ceiling price (plus local taxes as applicable) so fixed and notified by the government." - this provision of Para 14 (2) refers to the ceiling price of Para 14 only - there is no mention of the 'ceiling price' of Para 13 (2) in the definition in Para 2 (d) nor is the same referred to in Para 14(2).
Especially in the context of the government automatically not increasing ceiling prices when raw material prices increase as they have in the recent months because of the falling rupee, it is unsustainable for companies except MNCs with deep pockets to survive - therefore violation of Art 14. It is difficult for the government to monitor any suo moto increase of the numerous branded drugs much below the ceiling price, except may be for the well known brands. This may be a recipe to wipe out indigenous industry and smaller players even as companies are being taken over by foreign players.
Once the government fixes the MRP, it cannot legally force manufacturers to sell the same product below MRP, such an order will be unconstitutional
OPPI view - The government can always revisit the MRPs as medicines fall under Essential Commodities Act, 1955.
Moneylife counterview - That is in theory. Government record of revisiting prices under DPCO 1995 has been very poor. They have not revisited in time the prices of many items in a list of 74. How will they do this for 348 items and 600+ dosages?
DPCO 2013 due to its fixed ceiling prices will hurt manufacturers who are at the bottom of the price ladder and making very little profit in case there is price increase in raw material, conversion costs etc. Thus in reality the government will be penalizing honest manufacturers.
OPPI view - Any increase in raw material prices will have equal impact on all manufacturers irrespective of their size.
Moneylife counterview – We disagree. Those who are already priced their formulations at a high price will lose less in percentage terms. It will wipe out the lower priced product's profitability earlier than that of the higher priced version - generally that is. But eventually if the government does not act in time (the key phrase is in time) there will be shortages in the market. No government can force (as per some provisions of the DPCO 2013) to make a product when it is unviable. All this does not apply to big players with deep pockets and long sustaining power.
There is no data on prices prevalent in 2012
OPPI view - Probably data is not available with Monthly Index of Medical Specialities (MIMS) but is available with IMS and All Indian Origin Chemists & Distributors (AIOCD).
Moneylife counterview - The position as of November 1 is given below and the government has not as yet contracted to source from AIOCD. There are lot of differences in data of IMS and AIOCD.
No. of formulations for which no data is available through IMS
No. of formulations for which sales value (May 2012, MAT) is zero
No. of formulations for which prices have been calculated
No. of formulations where DPCO 2013 para. 6 would be applied
In the second article we will give the remaining OPPI view points and Moneylife counterviews
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India defines value in a different way to most of the other large car markets in the world. Hence, each global player needs to take a call whether it wants to wait for the market to mature or is willing to make extra effort to address the current market needs, feels Credit Suisse
India is a unique market with strong local players, and perhaps the only large market where none of the top four players globally have even a 5% share. In fact, across the emerging markets (EMs), India is the only country with strong local players in auto segment. Global carmakers, therefore will have to develop different and long term strategy for Indian market, says Credit Suisse.
"The market defines value in a different way to most of the other large car markets in the world and hence each global player needs to take a call whether it wants to wait for the market to mature or is willing to make extra effort to address the current market needs," Credit Suisse said in a research report.
India- the only large market where top three global players have such a low share
According to the report, Maruti Suzuki India Ltd, the country's largest carmaker has a big advantage over its competitors on almost every parameter. Korean automaker Hyundai Motor Co unit, Hyundai Motor India Ltd, stands out as the key challenger to Maruti Suzuki with a complete product portfolio and reach that is second to the Suzuki Motor Corp unit.
Most MNCs have a gap in the A segment, Maruti has a gap in SUVs
Credit Suisse feels to succeed in India, global automakers need to have suitable products, distribution network, use their facility as export hub, improve brand strength, take care of ownership cost and show commitment.
(1) Suitable products—unlike most other markets globally which are C or D segment markets, India is still largely an A and B segment market;
(2) Distribution network—the importance of this factor has grown in the past few years with strong growth witnessed in rural India (share has increased from 5% to 30%);
(3) India as an export base—given that one needs a certain scale to set up a plant, a player needs about 10% market share in India. Barring Hyundai this seems a tall order for other MNCs; hence it is important for a player to make India an export hub to get the required scale;
(4) Brand strength—a car is seen as a status symbol, hence apart from the product the mother brand also matters;
(5) Ownership costs—whilst most manufacturers offer similar fuel efficiency, reliability & cost of spares varies across manufacturers;
(6) Commitment to the market—almost every manufacturer wants to focus on emerging markets but few have created the requisite organisational structure to cater to the uniqueness of markets such as India.
Right products complemented by large distribution network
Based on these six parameters, Credit Suisse feels, Hyundai, Nissan and Honda are the key challengers to Maruti Suzuki, in Indian markets. "However,” it said, "given its success in the developed markets, Hyundai's focus on India seems to have reduced. It was one of the last players to launch a diesel variant on its hatchbacks and still doesn’t have a compact sedan that have 15% market share."
"The Renault-Nissan alliance stands out as the strongest emerging threat to Maruti Suzuki. They are the only new entrant expected in the A segment with the Datsun brand. The seriousness on India is evident by the frequent visits of Carlos Ghosn and the amount of money they have committed to the market. They have also made India an export hub with about 70% of the production being exported, thus despite entering the market much later they already have a significant scale in terms of manufacturing in India," the report said.
According to Credit Suisse, Honda is the other player to watch out for in India. "Honda has a very strong brand name in India, not only in cars but also in two-wheelers and engines and India is now getting the deserved attention. They have started correcting one large long-standing gap in the portfolio by developing a diesel engine specifically for the Indian market. And over the next few months, we will see them spread themselves across the entire B segment with six models—three body types (hatchback, SUV and sedan) on two platforms," the report said.
Exports solve problem of low utilisation Maruti has big advantage on spares
Although, Maruti Suzuki is the market leader, it is not sitting on its laurels and is working hard to maintain this advantage. Maruti Suzuki is likely to launch two SUVs to plug the only two gaps in its product portfolio in the less than Rs10 lakh price bracket. It is also developing a small diesel engine for its ‘A’ segment cars where none of its key competitors have a diesel offering. This smaller diesel engine will also be used by the company for its foray into the LCV segment. Another thing that should help drive both volumes and help Maruti Suzuki better combat currency volatility is the decision by its parent to allow the Indian unit to develop export markets in Africa and Latin America.
"Going forward, we are likely to see more as localisation benefits start trickling in. Given the higher competitive intensity in the market at present, discounts may not go down to the levels seen earlier but they will definitely reduce from current levels. Once demand picks up, operating leverage too should help margins; a 10% higher growth than the normal 8-10% growth (necessary to cover cost inflation) should help margins by about 100 basis points-bps," Credit Suisse said.
MCX appointed Satyananda Mishra, former chief information commissioner & IAS officer as the Chairman of the Board on FMC approval
Multi Commodity Exchange of India Ltd (MCX) said it appointed Satyanand Mishra, the former chief information commissioner as its new chairman.
In a release, MCX said, following approval from Forward Markets Commission (FMC) it appointed Mishra as its independent director till 31 March 2016.
MCX also recommended to FMC the appointment of Miten Mehta as a shareholder director of its promoter Financial Technologies India Ltd (FTIL) on its board.
On 31st October, Jignesh Shah had resigned as non-executive vice-chairman of MCX after sector regulator FMC issued a notice to him and FTIL. MCX fiasco was due to the imposition of commodity transaction tax (CTT) applied in July and recent payment crisis at NSEL.
Earlier this month, Paras Ajmera, the last nominee of promoter FTIL and Shreekant Javalgekar, managing director and chief executive officer of MCX have also resigned from the commodity exchange's board due to Rs5,600 crore payment crisis at the FTIL-promoted National Spot Exchange Ltd (NSEL).